Since investors have turned towards government bonds during the COVID-19 pandemic, students who are taking out federal student loans will pay the lowest interest rates in recent history. The interest rates will be 1.78 percent lower than last year, with an undergraduate interest rate of 2.75 percent — down from 4.53 percent.
Robert Humann is the general manager at Credible, a company that allows borrowers to compare the best loans for them. He said he believes the falling rate brought on by the economic impacts of COVID-19 are an opportunity for students who take out federal loans to get ahead on their planning to repay their loans before they graduate. In an email to The Daily, he warned now is not a time for students to take on more debt.
“Lower rates should not prompt undergraduates to take on more debt,” Humann wrote. “For one thing, there are strict borrowing limits on the most affordable federal student loans for undergraduates. The amount that undergraduate students borrow has more to do with the net cost of school they’ve chosen, and the financial aid they’re provided. These are decisions you make when you apply to colleges and compare financial award offers.”
Humann also emphasized the importance of lower monthly payments due to the drop in interest rates, writing they may affect the future of current college students.
“If rates stay low, this could affect your decision on whether to go to grad school, and how much additional debt you can take on,” Humann wrote. “Graduate students borrow a lot more — (about) $84,000 on average — and pay higher interest rates for federal student loans than undergraduates.”
W. Carson Byrd is a scholar-in-residence in the University’s National Center for Institutional Diversity. In an email to The Daily, Byrd mentioned the importance of staying aware of a possible second wave of COVID-19 and how it may affect the economy. In addition, he believes the rates will continue to fluctuate in the coming years due to the uncertainty of the pandemic.
“In general, interest rates on newly issued federal direct loans vary each year based on Treasury note returns,” Byrd wrote. “So, what the new rate is today most likely will not be what it is next year. Could it possibly decrease again next year? That’s always a possibility, but we’ll have to pay close attention to how the economy performs the remainder of this year and won’t have a good idea of what the change may be until spring 2021.”
Byrd is a higher education expert in the field of loans. He used the 2008 recession to compare the difference in loan interest rates.
“The years following the 2008 recession are a common reference point for people to think about how the economy may bounce back and what different interest rates may be for different products such as student loans,” Byrd said.
LSA junior Aratrika Ganguli has taken out both private and federal student loans to aid her in paying college tuition. Because the rate of federal student loans has dropped so much, Ganguli has been able to begin paying her loans, but said she is still struggling with her private ones.
“I think that students need this more than they have ever before,” Ganguli said. “So, I think this is great. Looking at the bigger picture, there are lots of students, who like me not only have federal loans, but also private ones. So, I think I would have liked it better if some of these companies also helped out students.”
Daily Staff Reporter Brayden Hirsch can be reached at email@example.com.